Trade uncertainty persists, PMI reports in focus

Mixed messages in relation to the trade dispute between the US and China chipped away at sentiment in global equity markets.

Traders were unsure which way to turn in light of the chatter that phase one of the trade could be agreed in 2020. It was reported in the South China Morning Post the US government might not slap new tariffs on Chinese imports next month.

It is entirely possible that both stories were released as a part of a ploy to get a reaction from the other side. This week there has been a lot of chatter and not much concrete news about what is going on, so dealers haven’t been overly excited. Yesterday was a bit of a downbeat day as stocks lost ground, but if traders were genuinely fearful about the trade story, stocks would be much lower.

China has claimed the US government are interfering in their affairs in relation to the Hong Kong bill. Beijing feel the US should mind their own business, and the move by the US could set things back in terms of the talks. The growing unrest in Hong Kong is worrying, but Beijing are unlikely to give into the US easily on the subject.

The US economy posted some mixed data yesterday. The jobless claims reading was 227,000, and the previous week’s report was revised higher from 225,000 to 227,000 – the joint highest reading in five months. Overall, the US labour market is in rude health, but dealers will watching the next non-farm payrolls report with extra caution. The existing homes report came in at 5.46 million, which was a 1.9% increase on the month, and that ties in with the broad increase the metric has seen throughout 2019.

The oil market rallied yesterday as traders were concerned about the supply side after Russia signalled it would support OPEC’s call for extending the production cuts. OPEC members will meet next month, and the charter in the markets is the group will vote to keep the production cuts in place. The global economy has cooling so there is a fear that demand for oil will dwindle, and in turn, the oil producers would like to prop up the market.

A number of major European countries will post their flash manufacturing and services reports between 8.15am (UK time) and 9.30am (UK time). The French manufacturing and services reports are tipped to be 50.9 and 53 respectively, German manufacturing is expected to be 42.9, and the German services report is tipped to be 52.

The UK manufacturing PMI and services PMI readings are expected to be 49 and 50 respectively.

The uncertainty surrounding Brexit has caused an economic malaise in the UK, and investment has tapered off, so the reports will provide an insight into the health of the British economy.

At 1.30pm (UK time) Canada will announce the latest retail sales report The headline reading is expected to show a decline of -0.1%, while the report that strips out auto-sales is expected to show an increase of 0.1%. The readings will give us a favour of consumer activity in Canada.

EUR/USD – has been broadly moving higher for over one month and while it holds above the 50-day moving average at 1.1043, it might seek to retest 1.1100 area. A drop back below 1.1041 could mean the currency is going to fall back into the wider negative trend, which could see the market target 1.0879.

GBP/USD – remains in the recent upward trend and a sizeable break above the 1.3000 area might bring 1.3178 into play. A move lower might put the 200-day moving average at 1.2704 on the radar.

EUR/GBP – is still in the bearish trend so 0.8471 might be targeted. A break above 0.8760 might bring the 50-day moving average at 0.8719 into play.

USD/JPY – while it holds above the 50-day moving average at 108.28 it could target 110.00. A move back below the 50-day moving average might bring 106.48 into play.

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